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G.R. No. 166884/ June 13, 2012


On June 7, 1999, LBP filed a complaint for estafa or

violation of Article 315, paragraph 1(b) of the Revised Penal
Code, in relation to P.D. 115, against the respondents before
the City Prosecutors Office in Makati City. In the affidavitcomplaint[5] of June 7, 1999, the LBPs Account Officer for
the Account Management Development, Edna L. Juan,
stated that LBP extended a credit accommodation to ACDC
through the execution of an Omnibus Credit Line
Agreement (Agreement)[6] between LBP and ACDC on
October 29, 1996. In various instances, ACDC used the
Letters of Credit/Trust Receipts Facility of the Agreement to
buy construction materials. The respondents, as officers
and representatives of ACDC, executed trust receipts[7] in
connection with the construction materials, with a total
principal amount of P52,344,096.32. The trust receipts
matured, but ACDC failed to return to LBP the proceeds of
the construction projects or the construction materials
subject of the trust receipts. LBP sent ACDC a demand
letter,[8] dated May 4, 1999, for the payment of its debts,
including those under the Trust Receipts Facility in the
amount of P66,425,924.39. When ACDC failed to comply
with the demand letter, LBP filed the affidavit-complaint.
The respondents filed a joint affidavit[9] wherein they
stated that they signed the trust receipt documents on or
about the same time LBP and ACDC executed the loan
documents; their signatures were required by LBP for the
release of the loans. The trust receipts in this case do not
contain (1) a description of the goods placed in trust, (2)
their invoice values, and (3) their maturity dates, in
violation of Section 5(a) of P.D. 115. Moreover, they alleged
that ACDC acted as a subcontractor for government projects
such as the Metro Rail Transit, the Clark Centennial
Exposition and the Quezon Power Plant in Mauban,
Quezon. Its clients for the construction projects, which were
the general contractors of these projects, have not yet paid
them; thus, ACDC had yet to receive the proceeds of the
materials that were the subject of the trust receipts and
were allegedly used for these constructions. As there were
no proceeds received from these clients, no misappropriation
thereof could have taken place.
Makati Assistant City Prosecutor Pineda issued a
Resolution dismissing the complaint. He pointed out that
the evidence presented by LBP failed to state the date when
the goods described in the letters of credit were actually
released to the possession of the respondents. Section 4 of

P.D. 115 requires that the goods covered by trust receipts be

released to the possession of the entrustee after the latters
execution and delivery to the entruster of a signed trust
receipt. He adds that LBPs evidence also fails to show the
date when the trust receipts were executed since all the
trust receipts are undated. P MR-denied!
On appeal, the Secretary of Justice reversed the
Resolution of the Assistant City Prosecutor. In his
resolution of August 1, 2002,[13] the Secretary of Justice
pointed out that there was no question that the goods
covered by the trust receipts were received by ACDC. He
likewise adopted LBPs argument that while the subjects of
the trust receipts were not mentioned in the trust receipts,
they were listed in the letters of credit referred to in the
trust receipts. He also noted that the trust receipts
contained maturity dates and clearly set out their
stipulations. R MR-denied!
He rejected the respondents submission thatColinares v.
Court of Appeals[16] does not apply to the case. He explained
that in Colinares, the building materials were delivered to
the accused before they applied to the bank for a loan to pay
for the merchandise; thus, the ownership of the merchandise
had already been transferred to the entrustees before the
trust receipts agreements were entered into. In the present
case, the parties have already entered into the Agreement
before the construction materials were delivered to ACDC.
Rs filed a petition for review before the Court of
Appeals. Applying the doctrine in Colinares, it ruled that
this case did not involve a trust receipt transaction, but a
mere loan. It emphasized that construction materials, the
subject of the trust receipt transaction, were delivered to
ACDC even before the trust receipts were executed.
LBP now files this petition for review on certiorari

On April 8, 2010, while the case was pending before

this Court, the respondents filed a motion to dismiss.
They informed the Court that LBP had already assigned
to Philippine Opportunities for Growth and Income, Inc. all
of its rights, title and interests in the loans subject of this
case in a Deed of Absolute Sale dated June 23, 2005

(attached as Annex C of the motion). The respondents also

stated that Avent Holdings Corporation, in behalf of ACDC,
had already settled ACDCs obligation to LBP on October 8,
Decision: DENIED!

The disputed transactions are not trust

Section 4 of P.D. 115 defines a trust receipt
transaction in this manner:
Section 4. What constitutes a trust
transaction. A
transaction, within the meaning of this
Decree, is any transaction by and between
a person referred to in this Decree as the
entruster, and another person referred to
in this Decree as entrustee, whereby the
entruster, who owns or holds absolute title
or security interests over certain specified
goods, documents or instruments, releases
the same to the possession of the entrustee
upon the latter's execution and delivery to
the entruster of a signed document called a
"trust receipt" wherein the entrustee binds
himself to hold the designated goods,
documents or instruments in trust for the
entruster and to sell or otherwise dispose
of the goods, documents or instruments
with the obligation to turn over to the
entruster the proceeds thereof to the
extent of the amount owing to the
entruster or as appears in the trust receipt
or the goods, documents or instruments
themselves if they are unsold or not
otherwise disposed of, in accordance with
the terms and conditions specified in the
trust receipt, or for other purposes
substantially equivalent to any of the
1. In the case of goods or
documents, (a) to sell the goods or procure
their sale; or (b) to manufacture or process
the goods with the purpose of ultimate
sale: Provided, That, in the case of goods
delivered under trust receipt for the
purpose of manufacturing or processing
before its ultimate sale, the entruster shall
retain its title over the goods whether in its
original or processed form until the
entrustee has complied fully with his

obligation under the trust receipt; or (c) to

load, unload, ship or tranship or otherwise
deal with them in a manner preliminary or
necessary to their sale[.]

There are two obligations in a trust receipt

transaction. The first is covered by the provision that refers
to money under the obligation to deliver it (entregarla) to
the owner of the merchandise sold. The second is covered by
the provision referring to merchandise received under the
obligation to return it (devolvera) to the owner. Thus, under
the Trust Receipts Law,[22] intent to defraud is presumed
when (1) the entrustee fails to turn over the proceeds of the
sale of goods covered by the trust receipt to the entruster; or
(2) when the entrustee fails to return the goods under trust,
if they are not disposed of in accordance with the terms of
the trust receipts.[23]
In all trust receipt transactions, both obligations on
the part of the trustee exist in the alternative the return
of the proceeds of the sale or the return or recovery of the
goods, whether raw or processed.[24] When both parties enter
into an agreement knowing that the return of the goods
subject of the trust receipt is not possible even without any
fault on the part of the trustee, it is not a trust receipt
transaction penalized under Section 13 of P.D. 115; the only
obligation actually agreed upon by the parties would be the
return of the proceeds of the sale transaction. This
transaction becomes a mere loan,[25] where the borrower is
obligated to pay the bank the amount spent for the purchase
of the goods.
Article 1371 of the Civil Code provides that [i]n
order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered. Under this provision, we can examine the
contemporaneous actions of the parties rather than rely
purely on the trust receipts that they signed in order to
understand the transaction through their intent.
We note in this regard that at the onset of these
transactions, LBP knew that ACDC was in the construction
business and that the materials that it sought to buy under
the letters of credit were to be used for the following
projects: the Metro Rail Transit Project and the Clark
Centennial Exposition Project.[26] LBP had in fact
authorized the delivery of the materials on the construction
sites for these projects, as seen in the letters of credit it
attached to its complaint.[27] Clearly, they were aware of the
fact that there was no way they could recover the buildings
or constructions for which the materials subject of the
alleged trust receipts had been used. Notably, despite the
allegations in the affidavit-complaint wherein LBP sought

the return of the construction materials, [28] its demand letter

dated May 4, 1999 sought the payment of the balance but
failed to ask, as an alternative, for the return of the
construction materials or the buildings where these
materials had been used.[29]
The fact that LBP had knowingly authorized the
delivery of construction materials to a construction site of
two government projects, as well as unspecified construction
sites, repudiates the idea that LBP intended to be the owner
of those construction materials. As a government financial
institution, LBP should have been aware that the materials
were to be used for the construction of an immovable
property, as well as a property of the public domain. As an
immovable property, the ownership of whatever was
constructed with those materials would presumably belong
to the owner of the land, under Article 445 of the Civil Code
which provides:
Article 445. Whatever is built,
planted or sown on the land of another and
the improvements or repairs made
thereon, belong to the owner of the land,
subject to the provisions of the following

Even if we consider the vague possibility that the materials,

consisting of cement, bolts and reinforcing steel bars, would
be used for the construction of a movable property, the
ownership of these properties would still pertain to the
government and not remain with the bank as they would be
classified as property of the public domain

In contrast with the present situation, it is fundamental in a

trust receipt transaction that the person who advanced
payment for the merchandise becomes the absolute owner of
said merchandise and continues as owner until he or she is
paid in full, or if the goods had already been sold, the
proceeds should be turned over to him or to her.[30]

Based on these premises, we cannot consider the

agreements between the parties in this case to be trust
receipt transactions because (1) from the start, the parties
were aware that ACDC could not possibly be obligated to
reconvey to LBP the materials or the end product for which
they were used; and (2) from the moment the materials were
used for the government projects, they became public, not
LBPs, property.

Since these transactions are not trust receipts, an

action for estafa should not be brought against the
respondents, who are liable only for a loan.

As the law stands today, violations of Trust

Receipts Law are criminally punishable, but no criminal
complaint for violation of Article 315, paragraph 1(b) of the
Revised Penal Code, in relation with P.D. 115, should
prosper against a borrower who was not part of a genuine
trust receipt transaction.
Misappropriation or abuse of confidence is
absent in this case.

Even if we assume that the transactions were trust

receipts, the complaint against the respondents still should
have been dismissed. The Trust Receipts Law punishes the
dishonesty and abuse of confidence in the handling of money
or goods to the prejudice of another, regardless of whether
the latter is the owner or not. The law does not singularly
seek to enforce payment of the loan, as there can be no
violation of [the] right against imprisonment for nonpayment of a debt.[34]
In order that the respondents may be validly
prosecuted for estafa under Article 315, paragraph 1(b) of
the Revised Penal Code,[35] in relation with Section 13 of
the Trust Receipts Law, the following elements must be
established: (a) they received the subject goods in trust or
under the obligation to sell the same and to remit the
proceeds thereof to [the trustor], or to return the goods if not
sold; (b) they misappropriated or converted the goods and/or
the proceeds of the sale; (c) they performed such acts with
abuse of confidence to the damage and prejudice of
Metrobank; and (d) demand was made on them by [the
trustor] for the remittance of the proceeds or the return of
the unsold goods.[36]
In this case, no dishonesty or abuse of confidence
existed in the handling of the construction materials.
In this case, the misappropriation could be
committed should the entrustee fail to turn over the
proceeds of the sale of the goods covered by the trust receipt
transaction or fail to return the goods themselves. The
respondents could not have failed to return the proceeds
since their allegations that the clients of ACDC had not paid
for the projects it had undertaken with them at the time the
case was filed had never been questioned or denied by
LBP. What can only be attributed to the respondents would
be the failure to return the goods subject of the trust

We do not likewise see any allegation in the

complaint that ACDC had used the construction materials
in a manner that LBP had not authorized.
No bad faith, malice, negligence or breach of
contract has been attributed to ACDC, its officers or
representatives. Therefore, absent any abuse of confidence
or misappropriation on the part of the respondents, the
criminal proceedings against them for estafa should not

In Metropolitan Bank,[37] we affirmed the city

prosecutors dismissal of a complaint for violation of the
Trust Receipts Law. In dismissing the complaint, we took
note of the Court of Appeals finding that the bank was
interested only in collecting its money and not in the return
of the goods
The petition should be dismissed because
the OSG did not file it and the civil
liabilities have already been settled.